How Blockchain will Revolutionize the Lottery

Blockchain has quickly become a buzzword in daily conversation, and it’s inspiring to see how far the technology has become since bitcoin’s debut about a decade ago. As entrepreneurs and developers move to adopt blockchain, its potential to disrupt brands far and wide becomes increasingly obvious, in fact, blockchain is emerging as a powerful technological force that promises to change the lottery industry’s status quo.

There is a lack of transparency in knowing which sites are safe, honest and trustworthy. With an estimated 1.4 million fake websites being created every month, any successful online lottery site is at risk of being hacked. So can the blockchain technology reinvent the online lottery industry?

But first, what is blockchain?

At its essence, the blockchain technology is a decentralized software mechanism that enables a public distributed ledger system. It allows the tracking and recording of assets and transactions without the presence of a central trust authority. Importantly, it relies on public key encryption, or cryptography which makes it difficult for hackers and other cyber criminals to change or steal data. It enables peer-to-peer exchange of data, assets and currencies through rules-based smart contracts in a more efficient, transparent and cost-effective manner. Here’s a look at some features that are common to all blockchain:

1. A blockchain is digitally distributed across a number of computers in almost real-time- this means that the blockchain is decentralized, and a copy of the entire record is available to all users and participants of a peer-to-peer network. This eliminates the need for central authorities, such as banks, as well as trusted intermediaries, such as brokerage firms.

2. A blockchain uses many participants in the network to reach consensus- this means that the participants use their computers to authenticate and verify each new block — for example, to ensure that the same transaction does not occur more than once. New blocks are only adopted by the network once a majority of its participants agree that they are valid.

3. A blockchain uses cryptography and digital signatures to prove identity- transactions can be traced back to cryptographic identities, which are theoretically anonymous, but can be tied back to real-life identities with some reverse engineering.

4. A blockchain has mechanisms to make it hard (but not impossible) to change historical records- this means even though all data can be read and new data can be written, data that exists earlier in a blockchain cannot in theory be altered except where the rules embedded within the protocol allow such changes — for instance, by requiring more than 50% of the network to agree on a change.

5. A blockchain is time-stamped- transactions on the blockchain are time stamped, making it useful for tracking and verifying information.

6. A blockchain is programmable- this means that instructions embedded within blocks, such as “if” this “then” do that “else” do this, allow transactions or other actions to be carried out only if certain conditions are met, and can be accompanied by additional digital data.

Breaking down the Challenges in the Lottery Industry

As with centralized services, lotteries have real and perceived trust issues. Some of the most common lottery industry problems are described below:

1. Fairness

Ensuring fairness of the game remains the biggest challenge. Lottery players may question the possibility manipulation or fraud, for instance,

· Are the ticket and lottery real?

· Is the money really accumulated in one pool?

· Is RNG truly random and secure?

· Is the jackpot winner real?

· Are the prizes paid on time?

Consider these 2 cases in point:

· Hot Lotto Fraud Scandal. Eddie Tipton, the former information security director of the U.S. Multi-state Lottery Association, installed software code that allowed him to manipulate random number generation and predict winning numbers on specific days of the year and led to his winning a $14.3 million jackpot in 2010. The manipulation was discovered, and Tipton was convicted and sentenced to 10 years imprisonment in 2015.

· The 1980 Pennsylvania Lottery Scandal (also known as the Triple Six Fix). This was a plot to rig the Daily Number, a three-digit game offered by the Pennsylvania lottery. All the balls in the three machines, except those numbered 4 and 6, were weighted, and as a result the numbers drawn were almost sure to be a combination of those digits. The scheme was successful in that 666 (one of the eight combinations that the conspirators were hoping for) was drawn on April 24, 1980; however, authorities were alerted by unusual betting patterns.

2. Regulations

In some countries lotteries are not legal, and in most other countries only governments and affiliated organizations can obtain a license to operate a commercial lottery business. Corruption schemes that can affect distribution of funds may take place in different regions.

3. Availability

Users from other countries cannot easily participate in some of the biggest lotteries in the world such as Euromillions or some of the lotteries in the United States. Users are limited to playing smaller, local lotteries due to the smaller size of their domestic market, underdevelopment of the lottery industry at home, or strict regulation. New online solutions that allow such players to buy worldwide or U.S. lottery tickets have recently gained some popularity, but the service charges, as well as risks of fraud and mismanagement, remain high.

Currently, lotteries are controlled by the state and regulated by law I most parts of the world. On average, no more than 50% of all funds collected from ticket sales are allocated to the prize pool. It should be noted that lottery participants have no control over how much money is collected from ticket sales, and the average value mentioned above is a rough estimate. In addition, lottery winnings are taxed, and in some countries (for example, the U.S.) as much as 60% can be withheld.

The average price of a lottery ticket is about USD 2.00. Lottery machines are used to draw the winning numbers for a lottery at different intervals. It is believed that the winning numbers are drawn randomly, but there are ways to influence the results. In order to make their lottery look more credible, organizers arrange live television broadcasts and set up lottery commissions. However, it is easy to make the process non-random by putting radio frequency identification (RFID) tags on lottery balls.

Enter the Blockchain Technology

The players in the gambling industry are unhappy with this system, and a few good attempts have been made to organize an honest internet lottery. However, the traditional approach to organizing a lottery which involves the use of a centralized organizational structure (i.e. a single server that may belong to a single owner) has long been mistrusted because nobody can check the RNG (random number generator) or any other parameters of the lottery other than a narrow circle of interested parties.

The blockchain technology is an evolution of the network server model in the sense that it is a distributed database structure with a secure write-forward authentication system for adding data and without a single point of failure evident in traditional data base structures. With the blockchain, any full node- computer, server or device — that participates in the network gains a copy of the ledger. These blockchain devices form the points of the network and can be described as ‘nodes’. Through nodes, users can update or input information into the ledger without going to a third party, giving much more power and flexibility to individual participants in the network, Each node of the distributed ledger is in communication with every other node, allowing regular updates and verification to take place. If network nodes fail in a blockchain, the network compensates for this loss as there are copies of the blockchain on the thousands of devices that are nodes. This makes it ideal for implementation in the lottery industry or rather the gambling industry. In a nutshell, here’s how blockchain can improve the gambling space:

· Privacy and accessibility

Using cryptocurrencies for gambling has become a widely popular solution for casinos, either as a main payment system or as an alternative to fiat-based ones. The advantages are many and well documented. By using cryptocurrencies, users will be able to gamble anonymously, without the need to hand over copies of documents or even create an account, depending on the platform.

Besides, cryptocurrencies are able to make online gambling accessible again, providing a low entry barrier for new players and allowing them to circumvent gambling regulations that apply to fiat only.

· Improve Fairness with the Smart Contracts concept

The Ethereum blockchain in particular has focussed on the concept of a smart contract. This is a digital agreement between parties, whose terms could be enforced by computers and would add the element of transparency to any transaction. With an impartial network insuring the contract is adhered to, any potential obstacles to transparency will be eradicated with blockchain technology. This means that with an online gambling blockchain in place, there is no altering of the rules, which are clearly legible to all parties, and an instant pay-out is guaranteed. There are no concerns about a site withholding winnings, because there is no site governing the game. The player’s funds go directly into the contract (and, if they win, back out again), without a middleman interfering.

This has seen various start-ups such as FIRELOTTOwhich seeks to leverage the blockchain technology to revolutionise the online gambling industry. The FIRELOTTO system has built a completely transparent and fully decentralized platform for organizing and conducting a lottery using the blockchain technology and ETH smart contracts for collecting and distributing funds, drawing winning numbers in a random fashion, and paying lottery ticket sales commission to token holders. The prize pool of the FIRELOTTO lottery is formed from 70% of the funds collected from ticket sales.

Blockchain- Creating a Supportive Ecosystem for the Lotteries

Amid unprecedented industry hype, the unique combination of technologies known as blockchain is emerging as a possible antidote to one of today’s most vexing business challenges — how to create greater trust, transparency and accountability for all who wish to transact and interact. And despite the fact that the technology is still in its infancy, blockchain is consuming strategic planning cycles of decision makers across industries. The underpinnings of the technology hold substantial promise for bringing the element of trust into the online gambling space. By integrating blockchain technology, all parties are set to benefit from the permanent record of a verifiable, unchangeable transaction ledger. This means that an online gambling platform leveraging this technology provides transparency at the transaction level.